Bankruptcy vs debt consolidation, which one is right for your current debt problems?

When you owe a lot of creditors a lot of money a debt reduction service can be very helpful. They act as a mediator between debtor and creditor and reduce your debt.

The way it works is that you gather all your unsecured debts together and provide that to the debt counselor. They set up an arrangement wherein you make one lump sum payment to them and they in turn distribute that money amongst your creditors. If you have secured loans you would have to refinance those with a debt consolidation loan.

Debt reduction services are often able to negotiate better repayment plans, reduced interest rates and at time a balance reduction. There is one drawback to this. It can be reflected negatively on your credit report and prevent you from receiving credit in the future.

However, it may be worth the sacrifice if the alternative is bankruptcy. Bankruptcy is a truly ugly mark on your credit report and makes you an extreme high risk for lenders. It is better to go with the option that will have the least negative affect long term.

Most counselors charge a commission for their services, which is generally about 10% on your monthly payment. Some of the counselors also get rebates from the creditors. Ideally, they should pas this to you, but this happens rarely.

All debt counseling agencies are not trustworthy. Some can not be relied on to make timely payments. Others use inappropriate methods in handling your money and making payments. You must be careful in the choice you make.

Some debt managers have been known to use the deposits they receive from debtors for things other than to make the payment to creditors. This hurts the debtor who is expecting that payments to his creditors are being made on time each month.

If you are already experiencing financial difficulties you do not need the added problem of having issues with your debt reduction counselor. You must choose wisely and be sure you understand consequences. For example, what will happen if you are unable to make a payment or payment is made late? These are types of things you must discuss before signing on with a debt counselor. This will save you from many headaches in the long run.

About the Author:

Are you tired of buying financial guides that make great promises but just don’t deliver on those promises? We offer objective reviews of many resources in the debt, credit, investing and real estate markets, to name a few. Visit http://www.financeproductevaluations.com to take a look at our latest reviews, such as our current top pick 37 Days To Clean Credit.

Robert Billings | Debt Settlement |

Tags: debt management services, debt negotiation, Debt Settlement

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